As the world moves towards a green economy, mining companies’ environment, social and governance (ESG) policies are coming under more scrutiny by investors.
Funders are now demanding that mining operations are carried out in a more ethical, responsible and sustainable manner. However, are mining companies getting it right in order to attract investment?
This was the topic of discussion at an Africa Mining Forum (AMF) digital event session entitled, 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).
While ESG seems to be getting a lot of attention of late, de Bruin stated that the concept is not new. “ESG is about managing your risks. These issues are life-threatening today and 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 just about ‘common sense’ and about doing the right thing. “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.”
Ratings under 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.
Furthermore, Lyons raised concerns about how investors rely on rating agencies for ESG information. “An ESG rating is not an objective truth. It is just a series of judgments made by rating agencies.
“Are all ESG ratings equal? Should we rely on just one ratings agency? These are all critical questions that will come out of this pandemic because what we don’t want to happen is that mining companies focus more on the 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?”
Meanwhile, Smart advised that there should be a single rating across the board. “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 concluded.
You can listen to the entire recording by registering on africamining.com as well as join live discussions during the event from 16-20 November 2020.