Mining and ESG

Launches full project development and delivery (PDD) offering

In June 2020, Rio Tinto in Australia blasted a 46 000-year-old Aboriginal cultural heritage site in the Juukan Gorge cave, to expand its iron ore operation in the Pilbara in Western Australia. Although it had ministerial consent to do so, the local community was opposed to it. The controversy leads shareholders to pressurise the CEO, Jean-Sébastien Jacques to resign and to sanction several other executives. What this case illustrates is the tension between mining and commercial imperatives and environment, sustainability, and governance (“ESG”) principles.

In September 2020, the four major accounting firms: Deloitte, EY, KPMG, and PwC submitted a paper to the World Economic Forum in Davos to set out metrics that would allow companies to measure their Environment, Sustainability, and Governance (ESG) performance. The metrics which were formulated were based on consultation and input from the 200 plus members of the International Business Council as well as some 120 CEOs. The metrics developed to help measure and monitor “stakeholder capitalism” and are also aligned to the United Nation’s Sustainability Development Goals.

There are 21 core metrics (and 34 expanded metrics and disclosures) and they fall into 4 main categories. The categories based on 4 pillars: governance, people, planet, and prosperity. The metrics selected were chosen because they are capable of verification and risk assurance. They enhance transparency and alignment among companies, investors, and relevant stakeholders and are capable of forming part of triple bottom-line reporting, regardless of the specifics of the sector or industry.

The four pillars are focused on the following:

• Governance: focuses on a company’s purpose, strategy, and accountability. This pillar includes risk and ethical behavior including anti-corruption.
• People: focuses on a company’s social eco-system and its treatment of employees, particularly in regard to diversity and inclusion reporting, wage inequality, and health and safety.
• Planet: focuses a company’s impacts on the environment particularly climate change via greenhouse gas emissions, land protection, and water conservation.
• Prosperity: focuses on how a company affects the financial wellbeing of its (host) community. Metrics include employment and wealth generation, taxes paid, and research and development expenses.

Although these metrics may be generic it’s patently clear they are easily applicable to the mining sector.

The value of these metrics is that it allows companies to report to stakeholders (not just shareholders) regarding their business activities and their impacts on people, the economy and environment in a manner that is consistent and comparable to other companies in the same sector. The reporting frameworks also adopt the disclosure or explain rule used in King III Code on Governance (and IV) and focus on materiality as the principle which guides disclosure.
No doubt there will be further debate regarding the actual framing of these metrics and their implementation. What is clear is that more and more capital and investment decisions will be made based on how and when mining companies implement their ESC systems and processes.