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As the world moves towards a green economy, mining companies’ environment, social and governance (ESG) policies and activities are increasingly coming under scrutiny by investors.

Funders are now demanding that mining activities are carried out in a more ethical, responsible and sustainable manner. However, there are challenges when it comes to ESG reporting as there is no universal standard that mining companies can subscribe to.

This article first appeared in Mining Review Africa Issue 1, 2021
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As such, the questions that come to mind are: Is ESG being carried out in the right way and does it have the desired effect of attracting investors? GERARD PETER reports.

This was a key topic of discussion at a recent Africa Mining Forum (AMF) digital event session titled Managing ESG compliance and investor expectations.

The session featured Rudolph de Bruin, funding partner of AMED Funds; Errol Smart MD and CEO of Orion Minerals; and Terence Lyons CEO of The Stakeholder Company (TSC). It was moderated by Mining Review Africa’s editor-in-chief, Laura Cornish.

Read: ESG in the spotlight

While ESG seems to be getting a lot of attention of late, to a large extent brought on by changing consumer habits, De Bruin stated that the concept is not entirely new.

“ESG is about managing your risks. These issues are life-threatening today. If you don’t comply with these key factors, then your company is at risk. So at the end of the day, it is a risk management exercise and it is essential.”

Weighing in on the conversation, Smart added that ESG is about ‘common sense’ and about doing the right thing in a business. “If you don’t do the right thing, your business will fail and ultimately it will affect the return on investment for investors.

ESG is a fundamental part of making money because at the end of the day, we mine to make money and we need to do it in the correct way or we will not be allowed to continue doing it and we won’t make money doing it either.”

Ratings in the spotlight

While the mining sector grapples with the COVID-19 pandemic, the question is: How are mining companies going to ensure a return on investment while adhering to ESG factors during an unprecedented time?

According to Lyons, the short-term survival goal for mining companies is cash management. “However, this cannot come at the expense of neglecting ESG factors. In light of the pandemic, nothing should change as ESG is good business practice and so it should be business as usual,” he stated.

The role of ratings agencies was also firmly in the spotlight during the session, with all three panellists calling for more standardised rating indices across the board.

Lyons raised concerns about the authenticity of the rating indices. “The ratings field is completely immature. It is just a series of judgments made by rating agencies.”

He cited the example of the various ratings given to electric vehicle manufacturer Tesla.

“When it came to environment initiatives, the FTSE Russell ESG Index gave Tesla a 0 while the MSCI Index gave the company top marks. Meanwhile, another agency, Sustainalytics, gave the company an average score. So how does an investor decide which score to take into account?”

Weighing in on the point, Smart advised that there should be a single rating across the board for all mining activities.

“What’s more, the narrative these days is that investors are holding miners to account. However, when you look at ESG ratings, it comes across that miners are holding investors to account. There needs to be a dual accountability by both investors and miners to adhere to ESG factors,” he noted.

Smart also concurred with De Bruin that ESG should be part of a company’s overall risk management strategy. “We have to accept that mining has an impact on the environment – not just the ecological environment but also the social environment. But it is about managing the impact in the most positive manner so that there is a justifiable outcome.”

Read: The future of green metals

Greater understanding needed

De Bruin reiterated that it is important to understand the primary purpose of why mining companies exist: To make money for their investors. However, at the same time, this needs to be done in a sustainable way.

“What is very clear is that more work needs to be done, a better understanding needs to be created and there needs to be a strong focus on ESG so that it becomes a part of how mining companies are run,” he added.

Smart further stated that downstream users also play an important role in promoting sustainability and good corporate governance. Mines, investors and end users all create the market that miners are trying to create. If we don’t get it right, it won’t be sustainable and ESG will be just another set of acronyms like CSR.”

In closing, Lyons agreed that there is a strong need for a single standard but, at the same time, there can be no one size fits all approach. “Also, we can agree that ESG is not CSR – it is something far deeper and more profound and likely to be more sustainable than CSR.

“We agree that it is not very well defined yet and is not measured properly. Are all ESG ratings equal? Should we rely on just one ratings agency?

“These are all critical questions that will come out of the COVID-19 pandemic because we don’t want to see mining companies focus more on their data and ESG management than solving the problems in the first place. So, the question remains: Is ESG the tail wagging the dog (which is the business) or is the dog wagging the tail?” he concluded.