More miners getting serious about ESG

Investors increasingly demanding ‘value beyond compliance’

Mangrove reforestation in areas affected by resource extraction is one of the measures mining
companies are taking to acquire social licence |  Piyawat Nandeenopparit/Shutterstock

It is acknowledged, even by some Green party politicians, that the global decarbonization effort cannot happen without mining.

All those electric cars, nuclear power plants, industrial-scale batteries and wind and solar farms will require a whole lot of copper, iron ore, metallurgical coal, lithium, aluminum, cobalt, uranium and rare earths.

But mining can have significant impacts on the environment and often on Indigenous communities, making it an easy target for social and eco-justice activism.

But it’s not just activism that the mining sector needs to worry about these days. Even big banks and institutional investors are becoming increasingly reticent about investing in, or lending money to, mining companies that haven’t addressed risks associated with social licence and climate change.

More and more, they are demanding that these companies demonstrate a commitment to ESG (environmental, social and governance).

Every year, Deloitte publishes a Tracking the Trends report based on industry surveys that identifies key trends and challenges for the sector. Topping this year’s list is the rise of the social investor. No. 5 is the imperative for mining companies to address climate change through the decarbonization of their operations.

“The whole topic of ESG – or environmental sustainability and governance principles – is really coming under scrutiny by investors,” said Andrew Stewart, Deloitte’s global mining and metals leader.

“If you’re a mining company and you are not able to demonstrate substantial progress or substantial embedding of those particular principles within your particular core processes of your organization, that excludes you from a significant chunk of the invested capital base.”

In his preface to KPMG’s mining outlook for 2020, Trevor Hart, global head of mining for KPMG, stated that “in the past, capital flows to the industry were primarily influenced by commodity prices. This remains true, but investors are increasingly rethinking where they deploy capital and especially how companies use capital in terms of environmental, social and governance (ESG) measures.”

Canadian mining companies still struggle with a reputation for being indifferent to, and even hostile toward, the concerns of Indigenous people in developing countries like Eritrea and Guatemala.

In recent years, citizens of those countries have sued Canadian mining companies in Canadian courts for human rights abuses. That has given anti-mining activist groups ammunition to tar the mining industry with a broad brush.

In Canada, a big part of the social licence equation is Indigenous relations and reconciliation.

Chad Day, president of the Tahltan Central Government, which has strong relations with the mining industry, said Indigenous reconciliation is not just an obligation for the industry. Some of the responsibility rests with First Nations themselves.

“It’s not so much sometimes that some companies are good and some are bad,” he said. “Some Indigenous nations have really good systems in place to ensure that companies are good and bad.”

The Tahltan have a central elected government, which allows the nation to take a unified position on resource development. In the case of the Wet’suwet’en, a dual governance system has led to confusion and division over the Coastal GasLink pipeline.

Asked if the organization has recognized any companies that have made real strides in addressing ESG issues, Ugo Lapointe, Canadian program co-ordinator with MiningWatch Canada, couldn’t think of one.

But a number of Canadian mining companies have made real efforts to address ESG issues in the countries where they operate.

B2Gold Corp. (TSX:BTO), for example, has built a solar power plant at one of its mines in Namibia, and is also building a new a 30-megawatt solar power plant at its Fekola mine in Mali. It not only reduces emissions from diesel generators, it also reduces energy costs by about 10%.

It has also built community water treatment plants, schools, and invested in tree nurseries and mangrove forest regeneration.

“It’s always been our culture that it’s the right thing to do – that social licence is critical,” said B2Gold CEO Clive Johnson. “When you go into another country, and mine their gold, you need to show a clear path as to why it’s better for the local people. A big part of that for us has always been CSR and ESG.”

Whether it is in British Columbia or Colombia, mining companies that make genuine efforts to consult with Indigenous people and provide benefits to those communities – from jobs to building water treatment plants and planting mangrove forests – find their efforts paying dividends in the form of social licence.

Stewart calls this “value beyond compliance.”

“How are you deeply engaging with that community and embedding yourself in that community such that those communities become your proponents?”

As for the “environmental” part of the ESG equation, addressing climate change is becoming an increasingly important part of the environmental equation. Those companies that have managed to shrink their carbon footprints are now enjoying a green branding dividend.

Rio Tinto (ASX:RIO), for example, has been marketing the aluminum it makes in B.C. and Quebec as “carbon-free,” because it is made with clean hydro power, and companies like Apple Inc. (Nasdaq:AAPL) have been eating it up.

Last year, Apple bought its first shipment of “carbon-free aluminum” from Elysis, a joint venture between Alcoa and Rio Tinto.

Not all mining companies have access to clean and abundant hydro or renewable power, however. Many still use diesel to power generators, trucks and heavy equipment. The Trudeau government recently announced new incentives that mining companies can access to switch electric powered mining trucks.

nbennett@biv.com

@nbennett_biv