ESG has long had the attention of the mining industry. With strong social licences to operate so critical to the success of a mine, companies understand the need to engage with local communities, politicians, customers, and regulators, adopting strategies designed to limit the impact of their operations on local communities and the environment.
ESG has rightly ceased to be simply a question of good corporate citizenship. Instead, investors now see ESG as a means of managing their exposure to risk, ensuring that their investment is protected against disruption to mining operations or costly legal settlements. ESG is now seen as good business sense.
But ESG is about producing as well as protecting value. In the last decade, the mining industry has begun to shift towards more sustainable practices following the end of the global commodity boom, implementing new and cleaner forms of resource extraction as a way of reducing operating costs. Maximising efficiency has assumed greater importance as the depletion of easily accessible deposits forces companies to focus on lower-concentration ores and those located deeper underground. Automation and electrification have also greatly reduced the power requirements of many mining activities, helping companies to meet their ESG objectives while enhancing returns. Although electric mining equipment only accounts for 1 percent of the market at present, this appears certain to increase. It is, therefore, little wonder that miners are going green.
Furthermore, developing ecologically friendly production methods offers the industry the chance to strengthen its reputation by positioning itself as a key partner within the wider transition to net zero. Technologies such as low-cobalt chemistry and sequestration of mine emissions will appeal to end-users as pressure grows from environmentally conscious consumers to demonstrate that the materials used in their products have been responsibly sourced. These manufacturing-side reforms have already begun to bear some fruit. In 2021, BHP announced a deal that will see the mining giant provide Tesla with a long-term and sustainable supply of nickel, a key component used to manufacture electric cars. Rio Tinto has partnered with Apple to produce carbon-free aluminium. Both deals indicate that the mining industry has begun to capitalise on the turn toward clean energy – a transformation that looks set to accelerate as the proliferation of ESG standards creates a market for sustainably sourced minerals.
Opportunities to do things differently also exist over the entire lifecycle of a mine. Mine decommissioning often involves efforts to rehabilitate the land through soil recovery schemes and tree-planting projects, allowing the local population to carry on without detrimental impacts once miners have left the area. To give just one example, with mining using an estimated 20 percent of the world’s water, it is vital that companies continue to invest in the research and development of technologies that make more efficient use of this resource, thereby greatly reducing the strain on local populations who depend on it as a drinkable source. It is critical the industry adopts a holistic approach, seeing the social and environmental impact of a mine as integrated issues.
As well as taking advantage of the opportunities offered by focusing on the environment to build their social license to operate, miners must also listen to and engage effectively with local communities. Engaging and finding innovative solutions regarding local social issues will put them in a far stronger position to attract institutional capital and enable them to navigate the greater pressure from governments and regulators who are keen to demonstrate they will aggressively promote the interests of the public.
From political elites to labour unions and Indigenous activists, a misstep on any ESG-related issue can determine the success or otherwise of an asset. Although inflation and the current economic environment have undoubtedly created challenges, a continued focus and strengthened commitment to ESG to produce additional value is the only sustainable pathway forward for the industry.
For more information on this topic, please reach out to the authors, Dentons Global Advisors Humza Vanderman and Jennifer Walmsley.
Dentons Global Advisors is an expert-led advisory firm that provides integrated solutions for clients in an increasingly complex, regulated, and interconnected business environment. Comprising Albright Stonebridge Group and a deep bench of communications and strategy consultants, we help clients engage with governments and regulatory bodies, navigate public disclosures and transactions within the private and capital markets, and manage their reputations through critical moments of change, challenge, or opportunity. Our relationship with Dentons, the world’s largest law firm, means clients can draw upon integrated legal expertise and strategic advisory services when and where they need them. To learn more, visit dentonsglobaladvisors.com.
