The View from England: Revolution underway, mining stands naked

A new strategic partnership on raw materials has been announced between Canada and the European Union. This follows the June 14 summit in Brussels between Ursula von der Leyen (President of the European Commission) and Canadian Prime Minister Justin Trudeau. The leaders also reaffirmed their ambitious commitments on fighting climate change and protecting the environment.

The mining industry in Canada, as elsewhere, is already committed to these objectives as part of an impressive embrace of environmental, social and corporate-governance issues. Indeed, if ESG were a metal, we could categorise it as being in a demand super cycle that began perhaps 15 years ago.

Unfortunately, the public remains largely unaware of mining’s effort. In this regard, there might be some parallels with a 1,000-year-old tale from India (attributed to Jineśvara in 1052) about invisible apparel. The story tells of a dishonest merchant who pretends to weave a supernatural garment that cannot be seen by any person of illegitimate birth.

This “invisible cloth” theme was repeated in a story (attributed to Don Juan Manuel) in a 1335 Spanish collection of cautionary tales, and then, most famously, by the Danish author Hans Christian Andersen. First published in 1837, “The Emperor’s New Clothes” tells of material that is invisible to those who are stupid, with the swindle being exposed by a child.

Social, environmental and corporate governance are intimately linked to the concept of responsible investment. Demand from ‘responsible’ investors has been growing since the early years of the new millennium. Previously there had been an assumption that ethically directed investments were likely to reduce financial returns. Even the celebrated American economist Milton Friedman (1912-2006) argued that the costs of behaving in an ethically responsible manner would outweigh the benefits.

Whilst Friedman provided academic support that the integration of ESG would reduce financial performance, numerous reports began to appear in the early years of the century which supported arguments to the contrary.

Friedman lived long enough to see the launch, in June 2003, of the Equator Principles. This risk-management framework was based on environmental and social-policy standards that had been established by the International Finance Corporation.

In 2005, the United Nations Environment Programme (UNEP) established its Principles for Responsible Investment. In the same year, law firm Freshfields Bruckhaus Deringer published a report (commissioned by the UN), which conclude that not only was it permissible to integrate ESG issues into investment analysis, but it was also arguably part of an investment company’s fiduciary duty. This imperative was cemented in 2015 when the UNEP published a report that concluded: “Failing to consider all long-term investment-value drivers, including ESG issues, is a failure of fiduciary duty.”

ESG equates to the sustainability of a company’s business model. Issues to be addressed include water management, minimising waste and preparing for mine closure (under the environment imperative); land use, labour practices and post-closure sustainability (under social issues); and ethics, corruption and transparency (under governance).

Unfortunately, much of this ESG data is qualitative, and not readily quantifiable in monetary terms. Nevertheless, the investment market has long dealt with intangible assets, including goodwill, and accepted them as contributing to a company’s value.

As Clive Burstow, the head of global resources at Barings, noted a year ago, “There is a quiet revolution underway in mining that is delivering more change than it has seen in centuries. Changes in management culture, and crucially the embrace of new technology and working practices, are rapidly making the industry safer, more efficient and more sustainable. This transformation is still in its early stages, but the mine of the future will be a blend of technology and best practices from other industries, shifting thinking from the mine in its traditional sense to one that is part of a larger industrial process.”

A dizzy array of data providers, consultants and investment companies are now focussed on responsible investment and ESG-based portfolios. There is considerable effort from London-based organisations alone. For example, the International Council on Mining and Metals is dedicated to “a safe, fair and sustainable mining and metals industry.” The ICMM brings together 28 of the largest mining and metals companies (operating over 650 sites in 50 countries), and its work focuses on supporting the UN’s Sustainable Development Goals, the contribution of minerals and metals to economic development, and on improving environmental and social performance.

Mining Journal (first published in 1835) has launched a “Digging for Climate Change” programme that aims to “build the pathway to carbon-neutral mining by expanding the conversation around climate education and the requirements for meeting bold emission targets.”

Also based in London, the World Gold Council’s Climate Change Lead, John Mulligan, said earlier this month that the mining sector “is clearly in transition,” but warned “the industry needs to keep building momentum and accelerating progress if it is to be aligned with investor and societal needs and expectations.”

It has been argued that the industry is still too motivated by value-protection and risk management, rather than on value creation. Mining needs to evolve beyond environmental-impact metrics, and focus on material benefits across the entire project life-cycle, for example decarbonising operations, integrating sustainable biodiversity and incorporating progressive reclamation plans into initial mine designs.

Progress is being made, however, and Mulligan called for the industry “to enhance how it demonstrates and communicates” these changes. Indeed, there is a danger that mining’s ESG effort will remain invisible to a public whose support and skills we need.

Unlike in Andersen’s fairy tale, magnificent things are there to be witnessed in a mining parade. The public is not stupid but people are not seeing what our industry has to offer.

— Dr. Chris Hinde is a mining engineer and the director of Pick and Pen Ltd., a U.K.-based consulting firm he set up in 2018 specializing in mining industry trends. He previously worked for S&P Global Market Intelligence’s Metals and Mining division.