The demand-side of global energy places immense pressure on the mining sector, which is perceived to make a significant contribution to CO2 emissions. Now, mining companies with extensive social and environmental footprints are coming under greater scrutiny by investors, civic society, and governments.
In Africa, the ESG challenge is the legacy of environmental damage and irresponsible mining practices, therefore there is a need to create guidelines for the continent.
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In the article, Evolution in African Mining: Investing in the Energy Transition, ESG and the Economies, FTI Consulting addresses the questions and possible responses on growth, costs, risks, capabilities, and licenses to operate that confront the mining sector in Africa and globally today.
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Based on research gathered through the FTI Consulting Resilience Barometer 2022™, the mining sector seems to be under the most pressure from the current focus on ESG concerns. In fact, nearly half of the companies polled reported that they are under increased pressure, and one-third said that they are falling short on ESG reporting. As a result, while recognising international decarbonisation goals, mining and metals companies understand that their own ESG goals are now under ever closer scrutiny.
“The ESG shift does not mean discarding possible down-side risks. Instead, it is seen as having a business strategy that seeks new opportunities from the transition to sustainability that is underway, understanding that there will be disruptions and unknown risks to manage within this.” Said Petrus Marais, Head of FTI Consulting South Africa practice.
This article looks at how these factors will impact the sector across four major areas of concern.
The complex ESG environment means businesses are under the scrutiny of social activists, shareholders, regulators, consumers and the media
1. Stakeholder engagement
While one in five companies in the extractives stated they were under pressure to strengthen external stakeholder relationships, one in two chief risk officers felt “extreme pressure” to improve external stakeholder relationships. Greater collaboration with external stakeholders, including customers and the supply chain, will be essential in embedding the demands of a circular economy in the mining lifecycle to reduce its carbon footprint and ensure improved materials footprints.
2. ESG
The mining sector finds itself at a complex juncture requiring transition management strategies that acknowledge the increased demand for raw materials driven by the mineral-intensive clean energy technology and a more aggressive stance on curbing their environmental impact. The global strategy along the decarbonisation and ESG compliance route is complex and multifaceted, and it will alter the mining sector while also providing opportunities and challenges.
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3. Circular economy
The mining sector is aware of the complex environmental risks – primarily from mining waste – that accompany its operations, and the option of displacing those from one environment to another is no longer tenable. Implementing circular economy thinking, such as focusing “on getting more from less” and adhering to waste-reducing principles – reduce, reuse, recycle – will improve the sector’s sustainability and long-term profits. Such practices would go a long way towards satisfying stakeholder concerns around ESG compliance.
4. Societal Impact of mining
There is far more at stake in the mining sector than increasing exploration costs. The cost of ignoring the “S” in ESG can be massive. The complex ESG environment means businesses are under the scrutiny of social activists, shareholders, regulators, consumers and the media. Crucial to this success will be the management and monitoring of carbon and wider materials footprint by accurately quantifying, measuring, and communicating the data collection.
Research shows that 90% of the mining sector sees the need to align business strategy to social purposes. In addition, 90% also saw the transition to a more sustainable business model opening the doors to new opportunities. As Sara Powell, Managing Director, Sustainability and ESG at FTI Consulting United Kingdom, said, “Organisations – across every industry – that ignore the acceleration towards net-zero will not only be highly vulnerable to climate risks but will also be ill-prepared to capture far greater stakeholder value by acting on transition-led opportunities.”
