MINING FOR PROFIT ‐ WITH PRINCIPLES.
Responsible and respectful mining requires that companies contribute to local communities. Is real impact happening, or is ESG a box to tick?
Look at any mining company's annual or quarterly results report and there is an inevitable emphasis on environmental, social and governance (ESG) issues.
’More than mining’ is how Royal Bafokeng Platinum introduce their 2022 Integrated Report, which dives straight into the United Nations 2030 Sustainable Development Goals. Gold Fields' recent Q1 2023 operating update presentation includes images of smiling workers in an unspoilt wilderness, others strolling through a verdant rainforest, and a child in a classroom. The public relations personnel know their stuff, and analysts and stakeholders reading these documents will feel warm and fuzzy.
Do they reflect reality? Do the much-discussed programmes and initiatives translate to the upliftment of local communities in proximity to the mines? Corporate visions of contributing to sustainable development, for the longer term, are admirable, but what does the evidence say about whether this is happening?
Many of the world’s giant miners cite their social projects as proof that they are making a genuine difference. One example is BHP Billiton’s ’Comprehensive Agreement’ with the Tjiwarl people in the area around its Nickel West operation in Western Australia. The agreement is a long-term one which guarantees the involvement of the community in land management and future collaboration. Among other, practical measures of change, it also aims to expand job pathways into the mining industry through specified educational and training programmes. So far, 50 people have completed certified work-readiness courses.
Assuming the company’s claims and case study documentation have been subject to compliance and verification checks, this is an example of a positive story of local population upliftment.
However, the shape of social initiatives does not always pan out this way.
The World Bank's authoritative Zambia Mining Investment and Governance Review makes interesting reading. The document notes some positives, but in Zambia - which is where Chantete Mining Services operates - the overall performance of the sector regarding its broader impact on national development is a mixed bag. Focusing on 'Local Impact' evaluation criteria within the value chain, mining scores well on accountability and inclusiveness: "CSO"s [Chief Supply Chain Officers] give priority to the legislation and accountability topics of the Local Impact value chain stage, so reflecting a focus on environmental issues and labour rights," the report says. However, the policies themselves, as well as companies' capacity and effectiveness to implement them, rank relatively poorly.11 'Zambia Mining Investment and Governance Review', World Bank Group, 2016. See figure 2, page 8
Further, the Zambia Environmental Management Agency (ZEMA) lacks resources both to conduct thorough reviews of mining license applications and then to assess whether licensing conditions are being met in terms of social and environmental factors. This implies that the country's mining industry operates within a weak regulatory framework - and companies are ticking the easy boxes rather than proactively doing more. The document describes a situation in which there is a chasm between what legislation, regulation and policies could achieve involving Local Impacts, and actual delivery.
Let’s zoom out and unravel what’s falling away - the lost opportunity - because of this chasm. First, the national economy’s suboptimal integrated development plan dampens the potential of mining enterprises to unlock growth in related sectors such as transport, manufacturing, and utility infrastructure projects. In effect, investments into diversifying businesses supporting the mining operation are either slower, or do not materialise at all.
Second, the indirect, knock-on of local supplier development does not gain traction, so job creation is lower. The result: mines do create opportunities for people living in their respective surrounding areas - but these are less likely to be either widespread or fast-growing.
The conclusions about Zambia almost certainly apply to a significant degree in many other countries whose economies have high levels of resource and extractive industry dependence (defined as comprising 30% or more of overall export earnings). Why? Because these are grouped mainly in Africa, South America and Asia - geographies comprising mainly nations with emerging economies, often mirrored with fragile governance structures. Thus, the lack of delivery of fulsome, sustainable development carries an aggravated price: it isn't happening as well as it should, and communities in those countries need it most.
Mining isn't making a good impressionAccording to the latest tracking by online media monitoring consultants, Meltwater, mining companies barely feature in the social media 'echo' of sustainability or social development goal (SDG) mentions. Glencore and Rio Tinto scrape in at around 1,000 mentions for April this year. This is a quarter of British Petroleum's (BP's) as the 1st-ranked company in the oil industry, and it is dwarfed by consumer brand owners such as Nike and the brewer Anheuser-Busch.
The trend is confirmed by specialist coding and technology developer firm, Accern, whose mapping shows the breakdown of the number of signals across various SDGs. Currently, 'affordable and clean energy' is being prioritised by most corporations both operationally and in their communications. Social issues including 'decent work', 'sustainable communities' and 'no poverty' rank drastically lower.
Indicators such as Meltwater’s and Accern’s add weight to questions around whether the mining industry is delivering meaningfully on social impacts in communities.
Reality check
Mining is a difficult business. It is capital intensive and risky. The payback period is long - if it happens at all.
As such, within the industry there remains a common sentiment that doing business is hard enough without the added complication of instigating environmental projects or investing in social upliftment.
What’s lost in this mode of thinking is that these are also investments in the business. Some of the gains are fairly quick and easily noticeable, such as the smoothing of investor relation when sound ESG policies and programmes are adopted. "Company management teams and boards are embracing positive environmental and social impact as an opportunity to drive growth and higher public-market valuations," noted global investment bank Morgan Stanley recently. Another influential investment advisory firm, MSCI, who model ESG risks and ratings, even correlate market capitalisation boosts of up to 11% with demonstrable leadership in ESG.
Other business improvements may be less obvious, and take a bit more time. A worldwide consultancy specialising in the manufacturing sector attributes operational gains to ESG measures because they catalyse a focus on finetuning and monitoring key performance indicators (KPIs) involving all aspects of operations, not only ESG-related. This in turn spurs a culture of continuous, integrative improvement. And new studies continue to add to the bank of empirical evidence that doing good is good for business - any business.
So, among leaders of mining enterprises, of any size and in any region, there should be no more doubt about this. Schools, clinics, utilities and infrastructure, and providing access to skills and training, are an investment in local people - but they also benefit the balance sheet and the bottom line.
Shared values, sharing value
Mining companies that adopt best-practice ESG strategies and implement high-consequence social initiatives can generate powerful, lasting positive impacts on communities and the overall economy of their national host. By building these kinds of bridges to a better future, miners can better secure their own success. The alternative - doing the minimum, or even operating in isolation from communities - might give better short-term profits, but it will compromise the company in the longer view.
The challenge for mining organisations is to step up their ESG, and particularly the social agenda, across all stages of the mining value chain, from exploration and discovery through to production and then rehabilitation. The cycle carries enormous potential for direct economic stimulus, and industry leaders should be more ambitious and imaginative about how to create this value and transfer a sustainably greater share to local communities.
And, towards genuine delivery, to intensify compliance measures and the monitoring of delivery.
So that we go deeper than sentiments and words.
Wish to share any perspectives on ESG in mining? Contact me at lafras@iafrica.com