24-25 Jul 2024
ICC SYDNEY

Robust accountability and transparency integral to effective ESG frameworks

Jun 21, 2024 Event News

Addressing medium-term structural and governance frameworks through holistic and comprehensive overhauls can enable investors, miners, communities, and all stakeholders effectively account for new and dynamic ESG risks transparently and qualitatively.

Recognising the link between environmental challenges and social equity is crucial for a holistic, people-centric, and human rights-based approach to environment, social, and governance (ESG) risk management, particularly as investors become increasingly focused on companies’ ESG credentials.

Future green industries and societies will be reliant on the extraction of critical minerals, putting focus on the importance of a mining sector that has supply chain reliability, business and community economic benefits, and commitment to ESG standards.

Companies which adapt early to mixed energy sources, improve and highlight community engagement, and develop robust governance and transparency frameworks will stand to benefit in the long run, as this will enable setting baselines for both quantitative and qualitative measurement.

One such significant ongoing regulatory review is the process to update the Joint Ore Reserves Committee’s JORC Code, the professional code of practice used in Australia for the reporting of exploration results, mineral resources, and ore reserves.

A main aspect under consideration is giving a greater prominence to ESG risk in reserve and resource estimation, with a proposed new clause of the code to specifically address ESG issues.

In the code’s current form, the section on ‘modifying factors’ does require proponents to consider more qualitative factors such as the availability of government approvals or community support for mineral extraction.

This section is facing the most change in the current review, through a strengthening of ESG disclosure requirements so investors are informed on qualitative factors that could threaten profitability of mining, as well as the more quantitative mineral composition of the deposit.

Strong governance frameworks comprise internal systems of practices, controls, and procedures that a mining company employs to manage itself efficiently, make informed decisions, comply with legal requirements, and meet expectations of external stakeholders in the mining sector.

Its key elements are transparency and reporting, ethics, compliance, shareholder rights, composition, and roles of the board.

The formative governance document for medium-term critical minerals extraction in Australia is the federal government’s Critical Minerals Strategy 2023-2030, which details regulatory and policy frameworks that aim to enable fast, efficient and durable environmental approvals, while upholding robust environmental protections, embedding strong ESG practices that enable access to global market, and supporting the sector’s enduring social licence to operate.

Tania Constable, Chief Executive Officer at the Minerals Council of Australia (MCA), said the success of Australia’s minerals industry depended upon its ability to operate in line with community expectations on ESG performance.

She said: “Strong ESG performance creates shared value for workers, communities, investors and broader society – how the industry operates is as important as what it produces.

“Minerals projects must be safe and environmentally and socially responsible in order to both make an economic contribution and support societal ambitions, such as those expressed in the United Nations Sustainable Development Goals and the Paris Agreement on climate change.”

Constable noted that MCA member companies were preparing to adopt the Towards Sustainable Mining (TSM) ESG management system, which is a globally recognised accountability framework which supports minerals companies to evaluate, manage and communicate their site-level sustainability performance.

She added: “Good ESG performance is built off investment in workforce skills and capability, research, new technologies and innovative practice to improve safety and workforce diversity, drive down emissions and water use, support biodiversity and reduce waste.

“By embedding ESG in company values, commitments, systems and culture, Australia’s minerals industry will remain the responsible supplier of choice to provide the materials needed to support a net zero, sustainable future.”

Awareness of ESG risks persists

ESG concerns ranked highest in EY’s top business and risk opportunity report for 2024, the third consecutive year it has topped the list.

The survey highlighted a number of key themes among the industry, including scrutiny from all stakeholder groups was increasing around ESG issues, which would have to be balanced with other business goals such as productivity.

Moreover, expectations of investors and stakeholders have been underestimated and continue to increase; the pace of change has accelerated; and that risks today are highly complex, interlinked, and impact each other.

Miners need to go beyond policy to gain investor confidence and community acceptance, and while setting a baseline for measurement is challenging, the focus should be on net positive outcomes.

Paul Mitchell, EY Global Mining & Metals Leader, explained that many miners were focusing on achieving a net positive impact.

He added: “For those who get this right, there are significant benefits including improved access to capital, a healthier talent pipeline and stronger licence to operate.”

In its report, EY noted that much of the challenge of ESG was the diversity of risks and opportunities at play, with companies grappling with issues ranging from water stewardship to ethical supply chains and mine closure.

The top ESG factors respondents said would face the most scrutiny from investors in 2024 were local community impact (64 per cent), tailings and waste management (55 per cent), and water stewardship (51 per cent).

Those were followed by attaining net zero emissions (46 per cent); diversity, equity and inclusion (31 per cent); and climatic events (27 per cent).

EY said: “Forty-one per cent of miners surveyed said their digital priority was a platform to track and report ESG metrics.

“To avoid disclosure missteps and make the best use of resources, miners will need a better view of high-quality ESG data, with strong governance and controls in place to ensure appropriate sign-offs and processes.”

A survey conducted last year by PwC found 35 per cent of global mining executives considered their company to be highly or extremely exposed to climate-related risks within the next five years.

Laetitia Le Roux, Utilities and Resources Tax Leader at PwC Energy, noted that even as the global mining industry strived to increase output of critical minerals to support the energy transition, mining leaders were keenly aware of risks such as market barriers, fines, and loss of social licence to operate.

Notably, 41 per cent of polled executives said they did not think their companies would be economically viable in 10 years’ time if they continued on their current path without reinventing themselves and adapting to the new era of critical minerals.

Le Roux added that decarbonisation wasn’t necessarily a threat, but presented an opportunity for mining companies to create value.

By Berkay Erkan

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