Environmental, social, and governance (ESG) factors are increasingly becoming an important part of mining investment decisions. For investors, ESG provides a way to understand the degree of uncertainty and to manage and minimize that uncertainty. Meanwhile, for mining companies, it helps them to create value and ensure that their plans to mine, process the metal, and sell the product are accurate.
This week on On the Rocks, host Emily King sits down with Allison Coppel, an ESG in Mining Investments Expert, to discuss the various roles of ESG in the mining industry.
What is ESG?
The Environmental factor (E) in mining is mainly about water, climate, air, waste, biodiversity, and tailings. The Social factor (S) covers safety, health, labor relations, supplier relationships, training, human rights, and diversity and inclusion. Governance (G) is about the company's trustworthiness, legal compliance, political contributions, and board of directors. All these factors are essential to manage and minimize uncertainties and create value creation opportunities.
Each of these ESG areas is a professional discipline in itself, but too often, especially in the earlier project phases, the focus is so much on keeping costs down to prove the business case that these professionals' areas are not incorporated until later. This can lead to mistakes and expensive project decisions made on a faulty foundation, such as where major facilities could be placed with millions already spent on their design, where water would be sourced to enable the operation, how and when a project could be permitted, and if the communities would ever accept the operation.
Why are ESG Factors important in the mining industry and investment decisions?
ESG is important to the mining industry because it enables mining companies to protect and enhance the environment, ensure safety for workers and good relationships inside and outside the company, respect human rights, create a business where people and communities grow and are happy to do so, be transparent about how the company is run, and follow the law. These are basic expectations of society, particularly when talking about an investment that is going to be there for 10, 20, or even 100 years. Unfortunately, for years, a number of these concepts have been ignored, misunderstood, and thought of as a mere asterisk to the “real plans,” not core components of investment decisions.
Investment decisions can happen throughout the mine life – in early exploration, each stage of project development, during operations expansions or upgrades, closure. And they can be from an investor, an operating company, and may be an M&A. The key is to disaggregate ESG, define what is material to the investment, and then integrate as it makes sense.
For instance, if an investor or the operating company wants to determine if they should fund the next stage of a mining project that’s in the scoping stage, still defining if there is a business case for the project, they should take the time to determine what is material, meaning what could impact the cost or schedule of this project. Not every topic is relevant to every project. Is the project in a populated or unpopulated area, in an environmentally-sensitive area or not? In a jurisdiction with a clear permitting framework or not? Understanding the operating context, the physical environment, the community demographics, history, culture, economy, the legal and regulatory environment is the first action.
Be sure to tune in to the full episode to learn more!
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