ERM - Supporting Environment, Social & Governance Risks in Mining

Posted on February 6, 2021.

People. Planet. Profits.

It’s widely acknowledged that ERM (Enterprise Risk Management) provides a framework from which organizations can understand and balance all types of risk – positive, negative, known, uncertain, unforeseen – and align risk-based decision-making across its operations.

Current thinking is that ESG (Environment, Social and Governance) risks should be very much part of an organization’s risk profile. In the mining sector, balancing and proactively managing ESG risk impacts on an organization’s profitability, reputation, and ability to achieve its objectives in an ethical manner. When correctly implemented, ERM can be a driver for positive change, supporting businesses in becoming more responsible and sustainable in their activities.

“Risk management is a process through which the potential pros and cons of a decision, event or scenario can be assessed and then, if necessary, actively managed. It exists to help us to take charge of some of the uncertainty in the world around us, and therefore better navigate our teams and businesses towards our vision, purpose and strategy. It is therefore used on a routine basis when we need to decide if carbon or human rights are more important to our organisations,” said Dr Sarah Gordon, CEO and Co-founder of specialist risk management consultancy, Satarla, in a recent University of London and Institute of Risk Management webinar.1

Balancing business activities and values

Gordon considers that environment, social and governance risks (to the organization and also created by it) should be intertwined with modern enterprise risk understanding, in order for risks to be assessed accurately and managed successfully. Ignore them, intentionally or not, and she cautions that “our risk profiles will be incorrect. This in turn leads to suboptimal control strategies and objectives not being met.”

Pushing ESG up mining’s corporate agenda

Today, beyond attaining and maintaining financial profitability, mining organizations must navigate the complexities of balancing benefits to the planet and to people. What’s practised now will undoubtedly have an impact on the future of a particular asset and have societal consequences.

The ESG agenda for mining encompasses a wide range of issues, including:

Environment – biodiversity, ecosystem services, mine waste, water management, air, noise, energy, climate change, carbon footprint, greenhouse gas, hazardous substances, mine closure.

Social – human rights, land use, vulnerable people, gender, labour practice, health and safety (workers and community), security, mine closure, post-closure mine use.

Governance – legal compliance, ethics, transparency, anti-bribery and corruption (ABC).

While different stakeholders are aligning with ESG, arguably its current focus is driven by the greater attention on environmental, social and governance-related issues and data demanded by investors and insurers.

Beyond financial viability, an organization’s ethics and culture are also under scrutiny and transparency is a must. And an increasing volume of regulation and legislative changes require companies not only to ensure legal compliance but develop a reputational position through which the confidence of investors is won.

“Be it due to requirements such as the Task Force on Climate-related Financial Disclosures (TCFD)2 – just one of many international, national and sector-specific ESG standards or frameworks to be considered – placed on those who invest or lend money, or members of those financial organisations requiring increased transparency on where their money is being invested, ‘greenwashing’ will no longer cut it,” says Gordon. “This arrival of the financial world pushes many risks over their tolerance thresholds into the ‘action needed now’ territory, as if we do not take them seriously, we will lose our investment and potentially even our insurance.”

The challenge is for mining companies to prioritise issues, chart what is important to them and how to it should be reported when sustainability pressures are intensifying. Do ESG risks affect an organization’s ability to work with communities, obtain permits, raise capital? But then again, do they also present opportunities, to improve operational performance, drive down emissions, reduce water usage, engage better with stakeholders and change perceptions?

‘ESG – Mining’s Opportunity’, a post based on a presentation by Dr Sarah Gordon and Jamie Strauss, CEO of Digbee, a data, research and ESG disclosure platform for the mining industry, at the Precious Metals Summit Europe 2020, puts the case for embracing ESG:

“ESG is an opportunity, not just a threat… a demonstration and proof of ESG at the heart of its operations would lead to a re-rating, thereby diverting funds into this sector. This would mean mining companies see the reward of responsible and sustainable operations, in turn providing an opportunity to redress the image and perception of mining.

Mining has a huge opportunity by placing ESG at the centre of its operations – from the investor’s perspective, looking for the impact reporting rather than sifting through the vast array of standards and frameworks is critical. A re-rating of the sector will divert funds into mining companies, thereby creating further impetus to ensure a sustainable and responsible future.3

Balanced decision making through ERM 

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[Footnotes]

  1. satarla.com/post/esg-risk-management
  2. fsb-tcfd.org
  3. satarla.com/post/esg-mining-s-opportunity

 

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