The Ethical Investor is Stockhead’s weekly look at ESG moves on the ASX.
This week’s special guess is BDO global head of natural resources Sherif Andrawes.
We take a deep dive into what ESG means for the mining industry, discuss how investors can be sure mining companies are being genuine about their ESG efforts and gain insights into what a successful ESG program for mining companies includes.
In what ways do mining and ESG overlap?
“Mining companies have more reason than most to be aware of ESG. They tend to be the focus of any ESG assessments as by their nature their activities have a direct relationship with the environment.
“Environment, social and governance are all important aspects to the mining industry, from the physical change to the landscape to the people it employs.
“The first step in becoming a more sustainable company is recognising the effect you have on ESG topics, measuring it and then working on how to reduce the negative and improve the positive impact. These topics are the foundations of good company practice and acknowledgement and understanding of these aspects is crucial to success.”
How can investors be sure a mining company is being genuine about their ESG efforts and credentials?
“As with any communication to investors, transparency is vital. ESG in the mining space has a reputation, rightly or wrongly, of greenwashing to an extent and selecting the information that presents them in the best light.
“It is important to acknowledge this and be clear and concise in how you communicate your ESG efforts to investors, balancing the positive aspects with the negative. Those companies who place a ‘marketing’ gloss over their ESG activities can be easily differentiated by investors from those who provide meaningful information.”
From your experience, what does a successful ESG program for a mining company include?
“In the past mining companies, especially those operating in developing countries, would focus on Corporate Social Responsibility (CSR), and whilst CSR based activities are relevant, a successful ESG programme goes far beyond that.
“A successful ESG program should by its efforts be barely noticed, as it is so well integrated with the usual operations of the company. While it may start off as its own thing over time the program should become part of the general day to day running of a company.
“ESG topics are nothing new to a company, or at least they shouldn’t be, touching on environmental reporting, health and safety, diversity and governance, all of which form the basis for good operations. A successful ESG program consolidates these topics and reports on them to both the market and internal company management to better inform decisions.
“Ultimately a successful embedded ESG program will result in the company being more successful financially through potentially being able to recruit and retain better staff, have more efficient operations and access to a wider range of customers.”
What are some of the common ESG studies a mining company needs to undertake (and why) when formulating their agendas?
“Key to ESG reporting is establishing what is material, so that it can be as focused and effective as possible. Materiality as a process involves working through the different ESG topics and determining both how the company has an impact on that topic and how the topic may impact the company financially.
“The output of this process – are the topics deemed as material and what the company should focus on in their reporting? What is material can vary from company to company and, within a company, from project to project. All stakeholders are considered in this materiality assessment process, not just investors.”
‘Going green’ comes with some expensive up-front costs, and in some cases lower emission technologies will need to be used, but what are the upsides?
“The cost of renewable energy has dropped drastically in the last decade, with the current issues mainly focused around providing consistent power during periods of downtime e.g. when the sun is not shining.
“In measuring and then reducing their emissions most mining companies are now considering the use of renewable energy as a component of their energy at their minesites. Renewable power generation removes the need for an energy source controlled by an outside entity and provides stability.
“However, the solutions adopted vary from minesite to minesite depending on location and energy needs.
“Technology is evolving quickly such that increasingly new solutions are becoming available.These can be more easily and cost effectively be built into new minesites than retrofitting existing minesites.”
Is there anything else you would like to add/comment on?
“There will be a lot of change over the coming years as mandatory ESG reporting is legislated.
“The end of the last year saw consultation open for the amendments to the Australian Securities and Investment Commission Act 2001, which BDO provided comment on, to enable the Australian Accounting Standards Board to deliver sustainability standards to meet the Government’s commitment.
“There is also consultation currently open on the design and implementation of climate related financial risk and opportunity disclosure, which BDO is also planning to provide comment on. This shows the appetite the current government has for increased disclosure and definitely a space to watch.
“Mandatory ESG reporting will change the landscape and focus for mining companies in this area. It is coming soon and whilst it is most likely to apply to larger listed companies first, before too long it will be mandatory for all reporting entities.
“Really all mining and exploration companies should have ESG reporting at the top of their agenda for the next couple of years so that they are well prepared and there are no surprises.”