ESG initiatives must ‘deliver real impact’

Mining executives continue to grapple with environmental, social and governance (ESG) issues, including decarbonisation, their social licence-to-operate (LTO) and compliance with everincreasing regulatory and reporting requirements.

In the White & Case 2022 Mining & Metals market sentiment survey, 40% of respondents viewed ESG issues, including climaterelated activism and regulations, as the most significant business risk.

Notwithstanding these challenges, three-quarters of businesses surveyed in the 2022 Mazars C-suite barometer planned to boost their ESG focus by investing in sustainability initiatives. However, these ESG commitments must extend beyond environmental compliance and regulatory boxticking to deliver real impact.

According to the Deloitte Tracking the Trends 2022 Redefining Mining report, mining companies should apply an ESG lens for “smart capital allocation” and think holistically to ensure their capitalallocation decisions reflect their ESG commitments.

In relation to the mining sector’s environmental impact, a recent review by WSP of public ESG commitments made by 12 of the top international mining companies revealed various trends.

“Notably, decarbonisation is one of the foremost commitments global mining companies are making. Even more encouraging is that addressing climate change, renewable energy and incorporating sustainability into decision-making rank in the top five,” says Ralph Heath, MD: Earth & Environment Africa at WSP.

Mine operators are also increasingly required to integrate environmental sustainability disciplines across the mine life cycle, including the planning, operating and mine closure phases, says Andrew van Zyl, incoming MD of SRK Consulting (SA).

“Project teams should pursue engineering solutions with early-stage input on pressing issues such as water stewardship, climate action and energy efficiency. Mining companies must not only pay attention to mitigating their own impacts by decarbonising operations, but must also adapt to the inevitable effects of climate change,” he said.

According to Van Zyl, early gains in decarbonisation include the move by numerous South African mines to self-provision electricity by developing their own renewable energy generation solutions.

“Alternatively, they are partnering with energy providers or broadening their corporate mandates to acquire businesses that specialise in renewable energy.”

Growing social concerns relate to the impact mining and other industrial projects have on society. “Many segments of society are increasingly mobilising around human rights, labour practice and anticorruption measures,” says Dr Vidette Bester, Senior Social Scientist at SRK Consulting.

“This has raised the potential for stakeholder concerns to boil over into serious disruptions and delays, and even collapse projects,” adds Bester.

Furthermore, financial institutions increasingly require details from borrowers regarding their social impact, along with other ESG measures.

“Financial institutions, regulators and investors are all aware of the risks posed by poor ESG performance, such as the reduced ability to finance and obtain operating permits,” says Heath.

“The result is ESG factors are now viewed as a key part of investment due diligence and have begun to affect other financial areas, such as a company’s eligibility for insurance, loans and securities, and the ability to attract and retain staff.”

Heath affirms a dedicated ESG programme will likely result in decreased operational risks alongside enhanced social value, as well as increased productivity through automation and digitalisation, and reduced water usage.

From a governance perspective, regulators in the European Union (EU) and North America are looking to introduce stringent new rules on reporting with new standardised international metrics to measure ESG.

“South African miners will have to comply with the new EU Corporate Sustainability Reporting Directive (CSRD) if they wish to continue exporting to EU countries,” says Bongiwe Mbunge, Partner for Sustainability Services at Mazars in SA.

“As a major exporter of many minerals into Europe, these regulations will become critical, as noncompliance will impact business performance.”

The CSRD mandates that disclosed information is “proportionate to the scale of the risks and impacts related to sustainability matters” of each sector, acknowledging that sectors such as mining are riskier than others.

“The CSRD prioritises the development of specific disclosure standards for ‘highrisk sectors’, including mineral, oil and gas extraction, which we welcome,” says Mbunge.

“Consequently, sustainable mining and the just energy transition will not be possible without full transparency from mining, oil and gas companies on their extraction projects.”