ESG and mining: sustainability after coronavirus

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As the world battles the coronavirus pandemic and resulting economic fallout, industries of all types face the urgent challenge of securing their short-term financial future.

But the debate about environmental, social and governance concerns has been far from drowned out by the global health crisis, even taking on new meaning as companies’ responsibilities toward worker and community health came to the fore.

For the mining sector, ESG was undoubtedly a business buzzword in 2019, but its main thrust was the environmental pillar. The spread of coronavirus and the impact on societies across the world appears to have refocused the interpretation of ESG on all three components, pointing to a more holistic approach than that taken previously.

Wake-up call for 2019

The Vale mining disaster in early 2019 drew international attention, making ESG hard to ignore for the mining industry.

The Corrego do Feijao mine’s No. 1 tailings dam in Brazil suffered a catastrophic failure on January 25, 2019, leaving 259 confirmed dead and 11 others reported as missing, whose bodies have never been recovered. The news sent shockwaves through the mining industry, as iron ore giant Vale admitted liability for failings around the storage of slurry.

Earlier this year Brazil’s National Mining Agency ordered the immediate closure of 47 iron ore tailings dams for which stability was not certified, with more than half of them owned by Vale and its affiliates.

This led to the creation of the Investor Mining & Tailings Safety Initiative, chaired by the Church of England Pensions Board and the Swedish Council of Ethics of AP Funds.

The initiative is an institutional investor-led engagement, including major asset owners and asset managers, with the mining sector on best practices.

Good progress is being made on the development of an international tailings standard, despite the global disruption caused by the coronavirus pandemic, Adam Matthews, a director on the investment team at the Church of England Pensions Board, told S&P Global Platts.

As the mining industry continues at pace to dig up minerals required for the decarbonization of the world’s energy needs, alongside traditional demand, one result will be mountains of waste. Matthews said that the mining industry required a “global” tailings standards to prevent future humanitarian and environmental disasters.

On the subject of the current pandemic and its impact on ESG, Matthews said society “shouldn’t drop the ball” and had to continue to address the most pressing issues to create a sustainable future.

“We are all part of society … [and] must acknowledge [our] connection to the financial [investments we make],” he stressed, underling that everyone has a responsibility to act.

He noted that discussions on the evolution of the tailings standards continued, and he was hopeful of a more concrete announcement later in 2020.

Meanwhile, Principles for Responsible Investment (PRI), working with the International Council on Mining and Metals and the UN Environment Program share a common commitment to the adoption of global best practices on tailings storage facilities.

Investor pressure mounting

It is impossible to ignore the fact that investors are turning up the heat on how companies operate. The financial press is awash with stories of investor activism, and as those headlines multiply, so the need for companies to react grows ever stronger.

Global diversified natural resources firm Glencore has faced pressure over the reappointment of ex-BP CEO Tony Hayward owing to his handling of the Deepwater Horizon oil rig explosion a decade ago. At the company’s annual general meeting in May, Hayward was re-elected with less than 4% of votes opposing the resolution, but the attempt to mobilize against him appears to reflect a growing trend.

Environmental campaign group Market Forces said that at Rio Tinto’s AGM in early May, 37% of shareholders voted against the board on a proposal calling on the miner to set greenhouse gas emission targets aligned with the Paris agreement. Although that meant the resolution failed, Market Forces said the vote in favor of the emissions policy represented a 6% increase on a similar proposal presented a year earlier.

On the subject of what the mining sector is doing to comply with increasing ESG mandates from investors, Fiona Reynolds, CEO of ESG body PRI said that market engagement had been “mixed” and the business still had some way to go. She said that from her experience it is investors who are driving natural resource companies to change their practices.

“I think without the shareholder pressure, miners would have come kicking and screaming,” Reynolds added.

While investors have a strategic role to play in ESG matters, so does business, and both need to collaborate for success, she added.

This was echoed by CoE’s Matthews, who said that the “sweet spot” in ESG progression was when investors and business collaborated, creating potentially “powerful partnerships.”

According to consultancy Alvarez & Marsal the wave of investor activism across Continental Europe will continue to increase in 2020 as activists adapt their tactics to different markets and sectors.

Its analysis shows that the UK remains the largest market for activists, “home to 54 of the 158 European companies which are predicted to face imminent risk from public activist campaigns.” The consultancy also noted the growing importance of ESG metrics as a rationale for investor activism.

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