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Men in Suits

Advancing ESG Commitments in the Mining Sector: Turning Intention into Action

Updated: Jun 27, 2023

Over the past half-decade, the mining industry has experienced an increased focus on Environmental, Social, and Governance (ESG) matters. With miners setting ambitious ESG objectives, the task now at hand is to effectively transition from intention to action. Rather than producing eye-catching reports and satisfying compliance indicators, ESG obligations in the mining sector need to induce genuine, on-the-ground changes. This blog post sheds light on trends identified in Deloitte's annual global mining report and proposes measures for accelerating the ESG journey in mining.

ESG Commitments

Capital Allocation Aligning with ESG Commitments

According to the recent trends, miners are keen to align their capital allocation with ESG commitments. As the pressure mounts from stakeholders demanding more ESG-focused practices, the ways mining companies distribute capital expenditure across their assets could significantly impact their competitive standing in the coming years.

The key to gaining a competitive advantage is the narrative miners present to investors. Energy, which comprises about 25-30% of operational costs for miners, is an excellent starting point. An impactful portfolio that emphasizes energy management initiatives offers tangible economic benefits, a strategy that investors find appealing.

Transformation of Traditional Value Chains

The transition to ESG commitments in the mining sector is also leading to the reconsideration of traditional value chains. Companies are assessing their portfolios with a new lens, aiming to incorporate climate-friendly minerals. They're also establishing alliances with downstream companies like automakers to ensure the supply of these minerals.

New business models are emerging in the form of metals reprocessing, recycling, and urban mining. This shift is in response to increasing scrutiny of emissions and the demand for climate-friendly minerals. As the dynamics change and new entrants try to capitalise on these demands, mining companies may need to reimagine their value chains proactively.

ESG Integration into Organisational Structures

It's crucial for mining companies to embed ESG into their organisational structures to facilitate sustainable development. Despite many companies referencing the United Nations Sustainable Development Goals in their sustainability reports, few have genuinely incorporated them into their business strategies. This shortfall highlights the need for a clear governance structure and an operational model that promotes visibility, accountability, and collaboration across departments.

Transitioning from Intention to Action

Transitioning from intention to action can be a significant challenge when trying to achieve ESG commitments. Oftentimes, this requires an organisational transformation, which may seem counterintuitive to current business models and goals. However, the following steps can guide mining companies in initiating their ESG journey:

Establishing Objectives and Incentives

Mining companies should define an underlying purpose connecting with communities, employees, and other stakeholders. Incentive structures aligned with broader ESG goals, such as energy efficiency, can help achieve this purpose.

Thinking and Acting Differently

ESG commitments should be viewed as value-adding decisions, rather than being considered merely for the sake of sustainability. For instance, ESG or decarbonisation efforts can reduce energy consumption, enhance stakeholder confidence, and boost operational efficiency.

Repositioning Portfolios

The composition of a company's portfolio is a powerful indicator of ESG commitment in the eyes of the financial community. Miners should aim to reorient their investments, prospecting for value-creating opportunities that advance ESG aims.

Long-term Planning

Scenario planning can help mining businesses assess the long-term impacts of ESG investments and the potential risk of social or environmental failures. Regular testing of ESG structures and processes should be an integral part of their long-term planning.

Identifying Recycling Opportunities

Mining companies can locate opportunities to reintegrate and recycle wastes back into processes or products by identifying "circular loops" in production and along value chains.

Taking Dynamic and Clear Actions

Embedding ESG is a learning process that will require adjustments along the way. Clear lines of communication that report on ESG progress need to be established, and externally, miners must communicate ESG expectations at each point in the value chain.

It is encouraging to witness the proliferation of ESG commitments in the mining sector. The industry still has a journey to make from ambition to execution, but it is a promising sign that companies are increasingly realising the necessity of incorporating ESG into all levels of their organisations to achieve their goals.

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