The Eden Project, a transformed former china clay pit

Miners Embrace the E in ESG

In Insight by Annabel De Morgan

Whilst any environmental and social work in mining projects may have previously been an attempt to appease NGOs and governments, it is, as is usually the case, the advent of investor interest in the space that has got the sector to step up a gear in terms of its efforts in ESG, as well as how it reports on these efforts.

The term ESG was first coined in a landmark study called ‘Who Cares Wins’ in 2005 and in little over 15 years, ESG has become a leading force in all investment decisions. Institutional investors were initially reluctant to embrace the concept, arguing that their fiduciary duty was limited to the maximization of shareholder values irrespective of environmental or social impacts, or broader governance issues such as corruption. With sustainable and responsible investment funds expected to manage €7.6trn across Europe over the next five years, there can be no doubt that ESG has become a key part of fiduciary duty.

On the 9th November 2020, Rishi Sunak announced that climate risk reporting will become mandatory for large companies and financial institutions in the UK, with the FCA to enforce TCFD guidelines for premium listed companies in 2021. So, what do these changes mean for miners?

Having immovable assets and requiring regulatory approval for the extraction of its resources means mining companies already adhere to many environmental and social standards that are required in order to permit construction. However, while mining companies have done much over the years on this front, it is a lack of global standards and directives that have perhaps resulted in a scatter gun approach in terms of reporting on how well the sector is doing.

In a move to establish common ESG requirements for the mining sector, the International Council on Mining and Metals (ICMM) launched the Mining Principles a few years ago. Whilst remaining aligned with other responsible initiatives the members, of which there are over 650 with assets in over 50 countries, don’t get to pick and choose which rules they apply.

There is no doubt that the mining sector hasn’t always had the best track record when it comes to environmental issues. The last ten years have seen a number of mining disasters including the 2015 Fundão dam collapse, which is still considered the biggest environmental disaster ever in Brazil. Over 39.2 million cubic meters of tailings waste leaked into the Rio Doce Basin.   In 2019 the Brumadinho tailings dam disaster again in Brazil and the 2015 Gold King Mine waste water spill in Colorado.  The list goes on. It is easy therefore, to peg the mining industry as an environmental pariah however, a quiet revolution is underway, and investors should be taking note.

It is perhaps also the risk of these very disasters that has seen fund managers include ESG analysts within their respective investment teams not only to gauge and better understand the risks, but also opportunities, that exist on the ESG side of various companies.

With tailings dams unsurprisingly high on the agenda, the PRI, International Council on Mining and Metals and the UN Environment Program launched The Global Industry Tailings Management in August 2020 that can be applied to existing and future tailings facilities, wherever they are and whoever operates them. ICMM members will have to implement the Standard as a commitment of membership.

The increased disclosure is not the only change we are seeing in the mining sector. With millennials set to inherit over US$24trn in the US alone over the next 15 years, it is vital that the mining sector revamp themselves from the image of a mass polluting dirty industry, to an innovative, high tech, driving force towards a greener future. And that is exactly what they have been doing.

In 2019, Rio Tinto completed the transition to entirely automated operation of its 1500km railway in the Pilbara region of Western Australia, becoming the first heavy-haul railway in the world to operate an automated network. Removing the drivers also cut an average of an hour from each journey, reducing bottlenecks and boosting productivity, proving yet again that ESG pays.

In December 2020, Fortescue Chief Operating Officer, Greg Lilleyman, announced the company was working on developing a non-diesel 240 tonne haul truck prototype that will test both battery-electric and fuel-cell electric drivetrain technology. Fortescue Metals Group Chairman and founder, Dr Andrew Forrest, also revealed the iron ore miner has plans to build Australia’s first “green steel” pilot plant this year.  This will be followed by a commercial plant, powered entirely by wind and solar, to be constructed in the next few years.

Anglo American’s ‘FutureSmart Mining’ promises to lead the way in an innovation-led approach to sustainable mining. They are currently carrying out a feasibility study to assess the possibility of rolling out one of its FutureSmart technologies, Coarse Particle Recovery (CPR), at the Quellaveco copper project in Brazil. om McCulley, CEO Anglo American Peru & Group Head of Projects stated that “CPR crushes particles to 2.5 times larger than normal, reducing energy consumption and mill time, leading to a 20% increase in throughput and 85% water recovery – a key issue in Peru given the concerns around water scarcity”.

Whilst scepticism of integrity still remains, the GHG Protocol corporate standard scopes have provided a template for best practice, with Scopes 1 and 2 being compulsory from a reporting aspect however leaving Scope 3 as voluntary. Yet mining companies, such as Ferrexpo, are choosing to divulge this information to the public whilst also addressing their supply chain concerns.

A mining company’s ability to manage environmental, social and governance (ESG) factors is widely viewed by investors as a proxy for prudent risk management, and it has never been more vital for these companies to ensure that ESG is at the forefront of their image. Clear messaging across all corporate materials including annual reports, websites, presentations and standalone sustainability reports, is key to avoiding any suspicion of greenwashing.

As the world continues to reel from the events of the past year, the mining sector keeps evolving. The need for even more change in the sector to keep up with changing investor preferences has never been more apparent. Although the mining sector sometimes gets tagged as a bad egg, there is no denying that the it is embracing change at a rapid rate. After all, sometimes you have to look back to see how far you have come.