What is ESG and what does it mean for the minerals industry?

Over the past five years Environmental, Social and Governance, or ESG, is a term that has become increasingly prevalent across the extractive sectors.

Much of the conversation surrounding ESG until this point has been focused on GHG emissions and climate change. Whilst these continue to remain vital components, other aspects of ESG are now acknowledged as equal contenders. Below, the Wardell Armstrong International (WAI) team summarises its key thoughts on what ESG actually means in the context of the mining industry. Let’s break it down:

E, or Environmental, refers to how a company considers the natural environment in which it operates and, where possible, mitigates the likelihood of exacerbating any existing environmental risk factors. It takes into consideration all aspects of environmental pollution and management, with a key focus landing on climate change and greenhouse gas emissions, water resources and ecology.

S, Social, relates to how a company considers impacts on local communities as well as how it manages its relations and communications with stakeholders including, but not limited to, employees, local communities, suppliers, and local and regional governments (i.e., its approach to the political environment in the jurisdictions under which it operates). Social value is a key component of the ‘S’, whereby companies or projects aim to be mutually beneficial for local stakeholders and developers.

G, or Governance, simply put, refers to the ways in which companies manage environmental and social risk on a corporate level and how they hold themselves accountable for meeting their E&S targets. Governance factors have, historically, been neglected in favour of E&S risks and considerations. However, adequate in-house governance practices are now recognised as instrumental when it comes to a robust ESG strategy.

Whilst starting out as peripheral factor complimenting a strong balance sheet and healthy production figures, ESG is now adding value to companies and projects in its own right. Lack of a strong, measurable ESG and sustainability strategy has become a sure barrier to investment for environmentally and socially minded metals and mining financiers.

These investors are looking beyond financial statements and resource estimates to consider the ways in which a firm manages its local stakeholder relations, its code of ethics, its sustainability strategy, and its path to net zero. It provides a method by which investments can be screened on their environmental and social integrity as well as their economic potential.

With all this in mind, mining and exploration company management teams are at a critical juncture when it comes to building ESG frameworks and, of course, setting measurable KPI’s by which they are able to hold themselves accountable. This becomes ever-more challenging as the demand for critical minerals increases in order to meet the requirements of the global energy transition.

To the industry’s credit, groups of all sizes, from greenfield explorers through to major producers, have rapidly developed their ESG strategies in order to meet the hastily increasing demands facing the sector. Highly detailed sustainability reports, which may have existed only for the majors of this world up until recently, are now cropping up on the websites of even the most junior, AIM-listed explorers – but there is more to be done, and these advances will not be slowing anytime soon.

How can we help?
Our multidisciplinary team is able to provide a myriad of services to help companies meet their ESG targets. We regularly work with clients to advance on ESG policies and practices throughout the project life cycle in accordance with best practice and assess and screen ESG risks and opportunities on a large or small scale.

In an ideal world, WAI would get involved as early in the project life cycle as possible. This approach allows us to screen and design out ESG risks from an early stage, potentially saving the client money, time and reputational risk as projects are developed.

We have a team of specialists across the firm, based in London, Truro and Kazakhstan, with a wealth of global experience and expertise, covering all aspects of “E”, “S” and “G”. The core team is supported across the firm by industry specialists in energy & climate change, waste & water management, environmental pollution, ecology, biodiversity, archaeology and cultural heritage, human health, land acquisition & resettlement and stakeholder engagement. Key areas in which Wardell Armstrong is able to provide client support are highlighted on the graphic below.