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ESG in mining: fix the flaws
by Lafras Luitingh
‘Who Cares Wins’ was the title of a 2004 United Nations report, one of many that have spun off from or dovetailed with the body’s Global Compact purpose and principles work of 2000.
Although the concept of contributory, responsible business practices had been seeded decades before, Who Cares Wins was a watershed formalisation of how reputable corporate citizens should organise their affairs. A holistic framework required three pillars: environmental impact considerations, social contribution, and sound governance as the bedrock for protecting both the business and all its stakeholders.
From broad idea to profits-with-principles actions, ESG was born. In the last few decades corporations have universally adopted the ESG tenet, because doing good has been proven to be good for business.
The mining industry was not quick out of the blocks in adopting ESG. Safety and regulatory compliance, environmental impact mitigation, and local community uplift initiatives occurred, but in fragmented or ad-hoc approaches. Global outrage at the mayhem within the supply chain of Africa’s illicit ‘blood’ or ‘conflict’ diamonds supply chain, and at Vale’s Brumadinho tailings dam collapsein Brazil in 2019, among other examples of systemic ESG inadequacies, spurred significant improvements in the industry’s operations, worldwide.
Mining companies do, still, underemphasise ESG, or implement it poorly. For example, a recent observation by one of the longstanding members of South Africa’s King Committee on corporate governance is that many companies skew their ESG efforts towards risk management and reporting. The ‘G’, governance, is treated as the priority because it makes for impressive corporate risk analysis and mitigation in annual reports – fundamental for shareholders and capital markets. However, for wider stakeholders what’s really at issue is sustainability and development. On these scores, the UN reports that only 17% of the world’s sustainable development goal (SDG) targets are on track to be met by the 2030 deadline.
Governments and regulatory bodies have a critical role in ensuring resource-rich nations benefit economically from the metals and minerals the entire world needs, and that local mining operations leave a legacy of minimal environmental impact and maximum social development. But this ESG mission has become increasingly compromised by the authorities and agencies tasked with encouraging development investments, negotiating licence-to-operate (LTO) conditions, and monitoring mining companies’ programmes involving sustainability and community upliftment.
The extent to which mining industry growth and economic development is curtailed by excessive legislation or restrictive compliance, or both, depends on where the lens is focused, and over what period. Major obstacles have blocked the industry’s dynamism in a key African geography. Anglo American, one of the world’s largest mining companies, proclaims that decades of poor government policy has caused its home-domicile nation to miss out on the commodities boom. A recent study concludes that 6.4 million tonnes of copper production capacity, roughly a quarter of the world’s supply, is “trapped by ESG roadblocks”. None of the 33 specific projects referred to are in Zambia or other African countries, and some relate to decades-old disputes or court rulings.
More covert hurdles lie within the practicalities of ESG projects – social development programmes in particular. It is unhelpful to the communities most impacted by mining activities that key decision-makers are often inexperienced, junior bureaucrats. A skills deficit factor compromises negotiations and the timely approval of well-intentioned corporate social investments. Problematically, local government involvement too often sabotages what should and could be done.
Elevating the ‘S’ – fast
Zambia has a comprehensive, robust legal framework for ESG. President Hichilema’s early moves after taking office five years ago included appointing a new minister of mines and repurposing the Minerals Regulation Commission (MRC) to smooth industry relations. The framework and safeguards are in place for central government to play a firmer role in how the mining sector’s social initiatives are enacted.
A simplification of ESG procedures could include a straightforward rule that once a company hits US$100 million in turnover, 1% must be spent on ESG. Complementary laws could specify how this 1% should be allocated, so that companies cannot embark on programmes that – although classifiable as ESG – do not contribute meaningfully to legacy benefits for communities surrounding the mine.
Prioritisation is key. Inevitably, housing and infrastructure are the population’s critical needs in newer mining project or development geographies.
If ESG is simplified and streamlined, more will get done, faster.
Socioeconomic opportunity for Zambia
The world’s green economy transition, coinciding with geostrategic shifts prompting wealthy nations to renew their participation in Africa’s economies and the continent’s industrialisation, has resulted in a spurt of favourable foreign investment flows into Zambia.
The country’s mining industry, its potential unfulfilled for too long, is positioned for a vital role in transforming the national economy. President Hichilema’s more business-friendly policies have resulted in approximately US$12 billion in fresh mining investments over the last four years, notably US$2 billion by First Quantum Minerals, including its US$1.25 billion expansion at Kansanshi S3. Copper prices hit record levels in London recently, and although subject to multiple, complex demand-and-supply variance factors, analysts overwhelmingly forecast a distinct bullish run for the metal.
And domestic participation in the country’s mining industry is set to ramp up as the Mining Local Content Bill takes effect, forging deeper local participation in, and benefit from, mining’s value chain.
As such, it’s possible to imagine an ongoing copper bull market and the subcontinent’s scaled industrialisation setting the scene for and catalysing a socioeconomic African Renaissance.
This vision, certainly, has obstacles in the road to greater prosperity for all. Foreign direct investment (FDI) inflows and GDP growth are not measures that count for ordinary citizens.
Rather, capital and output should be the means to participatory economic development as an outcome.
Mining companies understand that ESG is a strategy cornerstone, part of doing business. Governments see it as a potential driver of socioeconomic transformation. Both role players should reimagine the ESG lever– and pull harder, and with greater urgency.
Luitingh is the founder and chairman of JVChantete Earthworks Ltd, a local earthworks and mining services company to Zambia’s mining industry.