Mining Indaba: ESG costs could derail African projects, study finds

Some African mining projects could be shelved by the high cost of meeting Western environmental, social and governance criteria, according to a recent study from South African bank Absa.

African miners must adapt or die in the green energy era, said Dean Hack, director of resources and energy at Absa Securities UK.

Although global demand for minerals like copper, cobalt and lithium is driving a rapid shift to decarbonization, African miners may face rising costs and reduced investor appetite if they don’t adjust Western ESG benchmarks to reflect local conditions, he stressed.

“Africa as a continent has borne very little responsibility for historic emissions and yet there’s quite a large burden on Africa to support the decarbonization journey,” Hack said on the sidelines of the Investing in African Mining Indaba in Cape Town.

African countries such as South Africa have introduced more stringent environmental regulations in recent years.

ESG mandates, designed for developed markets, often require African companies to invest heavily in systems and processes that may not yet be economically viable in local settings, Absa says. The cost of implementing advanced environmental monitoring, social programs, and governance structures can become a significant barrier to attracting investment, particularly for smaller or junior developers.

Smart financing

Absa has financed over R115 billion (US$6 billion) in sustainability-linked deals across Africa since the bank got involved in the sector in 2020. Chetan Jeeva, head of SA corporate lending at Absa CIB, says this proves that smart financing can lower costs and improve credit profiles.

“If you prove your investment in renewable energy is measurable, we adjust your pricing by three to five basis points,” he said about the bank incentivising green investments by lowering the cost of capital.

Future-proofing African mining requires a multi-disciplinary effort that involves government, investors, communities, employees and markets, industry leaders told participants at the conference.

“Our continent has a massive mineral endowment in huge demand for the energy transition and for technology,” said Marna Cloete, president of Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF). “But the question is whether we can maximize this opportunity.”

Caroline Donally, managing partner of Sprott Streaming and Royalty, urged regulators to offer certainty.

“Investors want to be sure that if they invest today, the same legislation will be in place tomorrow,” she explained. Stable regulations, she argued, protect both environmental standards and investor returns.

Various Indaba panellists also spotlighted beneficiation as a key driver for local value and job creation. Martina Biene, chairperson and managing director of Volkswagen Group Africa, said that processing raw materials locally lowers carbon emissions and helps the environment.

Beyond ESG

Mining must look beyond traditional ESG metrics, some speakers said at the event. Expanding the focus beyond the “environmental” and investing in human capital and community development not only builds a sustainable workforce but also offers a way to offset the high costs associated with meeting stringent ESG standards.

Zenzi Awases, president of the Association of Women in Mining in Africa, argued that mining thrives when companies invest in communities and support small-scale miners. “Successful mining is sustainable mining,” she said.

Absa’s approach — linking measurable green investments with lower financing costs — demonstrates a practical path forward, Jeeva said.

He cautioned that if ESG criteria continue to be applied without adjustment for Africa’s unique market conditions, the resulting financial pressures could deter new projects and slow the pace of development in one of the world’s most critical mining regions.

“By aligning ESG targets with practical financing models and robust local partnerships,” Jeeva said, “the sector can secure the capital it needs while spurring job creation and sustainable development.”